Intermediate Econ Midterm
The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.?
+3.2%
Which of the following would shift the market demand curve for new textbooks "out," or to the right?
An increase in the number of students attending collge
A price floor policy establishes a minimum price for a market. Which of the following results from a binding price floor?
excess supply
When labor usage is at 12 units, output is 36 units. From this we may infer that
the average product of labor is 3
A newly-certified medical doctor who accepts a job with an HMO will earn $100,000 with probability 0.95 and $60,000 with probability 0.05. The doctor's expected income is:
98000
market supply curve reveals
the quantity of output that producers are willing to produce and sell at each possible market price
The market demand for sirloin steak is probably more elastic than the market demand for all meat because
there are more substitutes for sirloin steak than for all meats
The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called
consumer surplus
What happens in a perfectly competitive industry when economic profit is greater than zero?
existing firms may get larger, new firms may enter the industry, firms may move along their LRAC curve to new outputs, there may be pressure on prices to fall
Suppose there is currently a surplus of wheat on the world market. The problem of excess supply may be removed from the market by:
lowering the market price and shifting the supply curve up(left)
the short run is
a time period in which at least one input is fixed
At every output level, a firm's short run average total cost (SR ATC) equals or exceeds its long run average cost (LRAC) because
there are at least as many possibilities for substitution between factors of production in the long run as in the short run
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
they must have the same slope
The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:
2 lemonades for each popcorn
Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true?
Px/Py = money income
For any given level of output:
NOT marginal cost must be greater than average cost, NOT average variable cost much be greater than average fixed cost, NOT average fixed cost must be greater than average variable cost, NOT fixed cost must be greater than variable cost
Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pepperoni increases, what is the expected impact on Ronny's profit-maximizing output decision?
Output decreases because the marginal cost curve shifts upward
Which of the following costs always declines as output increases?
average fixed cost
As long as the actual market price exceeds the equilibrium market price, there will be:
downward pressure on the market price
In recent years, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the costs of extracting the copper increased due to higher energy prices. As a result, we observed:
higher equilibrium copper prices and either higher or lower quantities
Which of the following is true concerning the income effect of a decrease in price?
it will lead to an increase in consumption only for a normal good
Assume that yogurt is a normal good. If the price of yogurt rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.
less, less
A firm maximizes profit by operating at the level of output where
marginal revenue equals marginal cost
The cross-price elasticity between a pair of complementary goods will be
negative
Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.
negative, positive
Consider a graph in which good Y is on the vertical axis and good X is on the horizontal axis. On this graph, the income-consumption curve has a positive slope for low incomes, then it takes a zero slope for a higher income, and then it takes a negative slope for even higher incomes (the curve looks like an arc, first rising and then falling as income increases). This curve illustrates that, for all income levels,
only x is normal
The marginal rate of technical substitution is equal to the
ratio of the marginal products of the inputs
The endpoints (horizontal and vertical intercepts) of the budget line:
represent the quantity of each good that could be purchased if all of the budget were allocated to that good
The concept of a risk premium applies to someone who is
risk averse
An individual with a constant marginal utility of income will be
risk neutral
A production function assumes a given
technology
The marginal product of an input is
the addition to total output due to the addition of the last unit of an input holding all other inputs constant
Suppose Congress passes a law that states the price of gasoline may not exceed $6 per gallon (but may be lower). If the current price of gasoline is less than $6, what impact does this law have on the current price and quantity of gasoline in the US market
the law currently has no impact and the market clears at the equilibrium price
As we move downward along a demand curve for apples,
the marginal utility of apples decreases
A firm's short-run average total cost (ATC) curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?
the short-run average total cost curve reveals nothing regarding returns to scale
Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis
the slope of the budget line will not change
A firm's (long run) output expansion path is also
the slopes of the production isoquant and isocost curves are equal, costs are minimized for the production of a given output, the marginal rate of technical substitution equals the ratio of input prices
Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information:
we can infer that Blanca is risk averse
Suppose the major soft drink companies develop vending machines for canned and bottled drinks that can determine your maximum willingness-to-pay for a drink, and the machine charges you that price when you purchase a drink. If this were possible, the consumer surplus in the vended soft drink market would be
zero because all surplus value is captured by the seller
A newly-certified medical doctor who accepts a job in private practice will earn $250,000 with probability 0.20 and $30,000 with probability 0.80. The doctor's expected utility from income is:
0.2∗U(250,000) + 0.8∗U(30,000)
From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?
A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education
The fact that Alice spends no money on travel
implies she does not derive any satisfaction from travel, or she is at a corner solution, or that her MRS does not equal the price ratio
When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture
increases
Which of the following is NOT a necessary condition for long run equilibrium under perfect competition?
prices are relatively low
A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis?
-7/15
A perfectly competitive firm's profit maximizing condition can be written as
P=MC
A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals:
Px/Py
Which always increase(s) as output increases?
Total Cost and Variable Cost
A firm's (long run) output expansion path is
a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:
a production isoquant
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?
average fixed cost curve
When the income-consumption curve has a positive slope throughout its entire length, we can conclude that
both goods are normal
The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then
if A is more expensive than B, then Xavier must prefer A over B
An isocost line reveals the
input combinations that can be purchased with a given outlay of funds
A production function in which the inputs are perfectly substitutable would have isoquants that are
linear
The change in the price of one good has no effect on the quantity demanded of another good. These goods are:
not complements, substitutes, inferior, of Giffen
A firm never operates
on the downward sloping portion of its AVC curve
Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?
output decreases by more than 25 percent
When an isocost line is just tangent to an isoquant, we know that
output is being produced at minimum cost
Recently, Skooterville has experienced a large growth in population. As a result, the market demand curve for housing in Skooterville:
shifted to the right
The change in the quantity demanded of a good resulting from a change in relative price with the level of utility held constant is called the ________ effect.
substitution
The battery packs used in electric and hybrid automobiles are important components for manufacturing these cars. As the price of these batteries decline, we expect that the:
supply curve for electric and hybrid autos will shift down(right)
A risk-averse individual would always
take a sure $10 rather than 10% chance at $100
If a perfectly competitive firm's marginal cost (MC) and marginal revenue (MR) curves are equal at a point where MR is above AVC but below ATC,
the firm is earning negative profit, but will continue to produce in the short run
According to the law of diminishing returns
the marginal product of an input will eventually decline
The slope of an indifference curve reveals
the marginal rate of substitution of one good for another good
A competitive firm's short run supply curve is
the portion of its marginal cost curve that lies above the average variable cost
Assuming a standard S-shaped production function, marginal product crosses the horizontal axis (is equal to zero) at the point where
total product is maximized
marginal utility measures
the additional satisfaction from consuming one more unit of a good